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Market Recap – December 11, 2023

Keel Point

December 11, 2023

The Fed will leave its policy interest rate unchanged at its December 12-13, 2023, FOMC meetings, so markets will be most focused on the Fed’s updated Summary of Economic Projections (“SEP”) and what Fed Chair Powell says at the post meeting press conference. 

  • Futures market are betting (60% odds) that the Fed will start cutting its rate by 25 basis points at its March 2024 meeting. Most likely, it will continue — barring an unexpected reversal in inflation’s trajectory – with a 25-basis point cut at each of its meetings thereafter.  
  • With PCE core inflation – Fed’s preferred metric — annualizing at 2.4% over the past three months and 2.5% over the past six months, the Fed is becoming increasingly confident that it has won the war against inflation. So, the internal discussion at the Fed/FOMC is about when and by how much to start reducing its Fed funds rate, and the so-called “dot plot” will signal where the FOMC members are in this respect.
  • Even after Fed Chair Powell tried to damp the market enthusiasm about Fed rate cutting in 2024, the belief is growing that the Fed will start cutting early next year as the data confirm the current trend of PCE core inflation settling back to 2%.
  • Consumer sentiment reported by the University of Michigan last Friday shows the 12-month-ahead consumer inflation expectation has fallen back to 3.1% in December from 4.5% in November, thereby reaching its lowest point since March 2021.
  • The employment report for November released last Friday also shows job growth slowing, after adjusting for the 47,000 workers returning from strikes. The greater rebound in the household employment survey brought the unemployment rate down to 3.7%, supporting consumer confidence in a cooling jobs market.
  • Productivity gains of 2.4% over the past 12 months offset the continuing 4% growth rate in average hourly earnings enough to support the Fed’s 2% inflation target.

Stock and bond markets reacted positively to the employment, productivity and consumer sentiment reports out last week, with the S&P 500 closing up 0.88% for the week and up 20.4% year-to-date.  Yields on 10-year Treasuries have fallen from just a hair under 5% on October 19 to 4.12% on December 6. 

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC, an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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